October 15 is National HSA Awareness Day, which means it’s a great time to brush up on your health savings account (HSA) knowledge and understand how these accounts can help your employees on the road to financial well-being.

HSAs were created as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. This came at a time when health costs were rising, as were the deductibles associated with high-deductible health plans (HDHPs). HSAs were created to both help offset medical costs when an employee is enrolled in a HDHP and also encourage employees to save for future or unexpected health care costs. Flash forward more than 20 years and there’s still a learning curve when it comes to how HSAs work.

HSA Basics

An HSA is an account that allows accountholders to contribute funds on a pre-tax basis to pay for qualified medical expenses. However, the S in HSA stands for savings, meaning it’s a great support tool for accountholders that focuses on long-term savings benefits. While the money accountholders contribute to their HSA is tax-free, any additional money earned from interest and/or investing is also considered tax-free as long as these funds are used for eligible medical expenses. This means that the money accountholders contribute, spend, and earn through interest and investing is all tax-free*.

With an HSA, accountholders save approximately 30%* on eligible expenses, making a $1,000 expense cost about $700. Accountholders get these savings because HSA contributions are generally exempt from Federal, State, and FICA payroll taxes.

As there are three key ways an HSA can be used, there are three main types of accountholders – Spenders, Savers, and Investors.

• HSA Spenders: Contribute what they think they will spend on the current year’s medical expenses to their HSA.
• HSA Savers: Are primarily focused on saving for unexpected or future health care costs.
• HSA Investors: Typically are looking at their long-term health expenses and are saving for retirement by investing some or all of their funds.

No matter what type of accountholder your employees are, they can receive tax-savings that make medical care more affordable. As their employer, you are in the best position to offer your employees the tools they need to succeed, and an HSA offers a variety of options to meet the needs of your employees. Check out the tips below to share with your employees how they can make the most of their HSA.

*This tax example is a broad approximation of tax liability. Further, your contributions may be subject to state income tax in some states. Your specific savings depend on your tax bracket. You should consult a tax advisor for help with your own situation. Current IRS tax laws control all pre-tax payment and contribution matters and are subject to change.

Spend HSA Funds on Current Expenses

HSA Spenders are those who plan to spend the money they contribute to their HSA on eligible expenses that they incur for the year. There’s a variety of reasons why accountholders may be Spenders, whether it’s because they aren’t in a spot where they’re financially ready to move on to other categories, or they don’t fully understand how an HSA works, or they just simply want to spend the funds they contribute. They may calculate contributions based on the previous year’s spending or anticipated expenses to ensure they’ll have enough to cover the upcoming year’s expenses. These accountholders are still receiving tax-advantages when spending on eligible expenses.

Tips for Spenders:

1. Save receipts! As a best practice, accountholders should save their receipt for each HSA transaction in the event of an IRS audit. This can be physical receipts or accountholders can scan their receipts and store them electronically to ensure they’re accessible.
2. Use the Benefits Card. The easiest way for HSA accountholders to spend their funds is using their Benefits Card. When they use their Benefits Card, they are paying directly from your benefit account, meaning there’s no need to reimburse themselves.
3. Where to shop. Accountholders can shop where they normally do or check out an online retailer that specializes in HSA-eligible products. Visit ebcflex.com/wheretoshop to learn more.

Save for Future Expenses

HSA Savers are those who plan to use their HSA funds for unexpected or future health expenses. They may use some of their annual contributions on eligible expenses throughout the year but they are primarily saving these funds for a rainy day. These accountholders typically also know that their HSA funds grow tax-free so they save the money in their account to collect tax-free interest.

Tips for Savers:

1. Consider interest options. EBC offers two interest options for HSA cash funds – traditional and high-yield. An HSA with a high-yield interest rate offers the potential to earn higher interest on HSA account balances than an HSA with a traditional interest rate offers. With the high-yield feature, the road to financial wellness may be more accessible for those who choose to take advantage of enhanced interest rates and maximize the savings potential of the cash balance. While the high-yield interest option may be top of mind for Savers, Spenders and Investors might also benefit from the potential of a higher interest rate for any funds that are in the cash account.
2. Set savings goals. Employees who are savers may wish to consider setting goals so they have enough funds to cover large planned health care expenses (such as in-vitro fertilization or surgery). They may also wish to set balance goals to cover emergencies or health costs incurred during retirement. Employees who are not frequently using medical care may have the means to be more aggressive with savings than those who utilize their funds frequently.
3. Utilize the $1,000 catch-up contributions. Employees who are 55+ have the opportunity to contribute up to $1,000 more to their HSA than the statutory maximum. Accountholders can continue to use their HSA funds even when they join Medicare, but they are no longer able to contribute at that time. If possible, employees who are eligible for the catch-up contribution may wish to take advantage of contribution tax savings before they won’t be able to.

Invest for the Future

An HSA Investor is typically (but not always) someone who is looking at their long-term health expenses and are saving for retirement. These individuals understand that like any investment, there is risk associated with investing funds. Even though Investors may primarily be focused on investing and their long-term savings, other accountholders can benefit from investing as well. With EBC’s HSA, it’s quick and easy to move funds between a cash and investment accounts. Accountholders who have a minimum HSA cash balance of $1,000 have the opportunity to invest their HSA funds.

Each year, more HSA funds are being invested by accountholders. An October 2023 Alegeus Webinar found that an estimated $51.3 billion of the HSA balances in 2024 will be invested funds, which is a 69% increase over the last five years.

Tips for Investors:

1. Choose an investment path. EBC offers three investment models to choose from based on the participant’s experience level – Managed, Self-Directed, and Brokerage. Accountholders who are looking for guidance on investing HSA funds should consult with a financial advisor.
2. Consider auto-transfers. Accountholders have the opportunity to set up an auto-transfer to have HSA deposits (or a portion of it) automatically transferred from the cash balance to the investment account. Accountholders who know they want to invest a portion of their contributions may wish to set this up to avoid missing an investment contribution.
3. Enroll in a limited health flexible spending account (FSA). Investors who don’t want to use their HSA funds may wish to enroll in a limited health FSA if their employer offers it. This allows them to pay for eligible dental and vision expenses on a pre-tax basis, without having to touch their HSA investment funds. Even though Investors may be least likely to use their HSA funds while working, Savers could also greatly benefit from opening a limited health FSA to receive additional tax savings.

Communications for All Accountholders

If you have an HSA with EBC, you have a variety of communications available to help your employees make the most of their HSA, regardless of what type of accountholder they are.

Some materials that may be helpful for your accountholders are the following:

• Spenders: Paying With Your HSA Video and HSA Eligible Expenses
• Savers: High-Yield FAQs and HSA Interest Options Video
• Investors: HSA Investment Overview Video
• All Accountholders: An Introduction to HSAs

These materials and more can be found in the communication toolkits. To access the toolkits, log in to your employer online account and locate Communication Toolkits under Resources.